CLIENT ALERT, January 2008
On May 18, 2007, the Centers for Medicare and Medicaid Services ("CMS") announced its intent to require hospitals to supply detailed information
concerning its ownership, investment, and compensation arrangements with physicians. See 72 Fed. Reg. 28056 (May 17, 2007). CMS plans to send
500 specialty and general hospitals a Disclosure of Financial Relationships Report ("DFRR"), a new mandatory collection instrument that CMS intends
to use to pursuant to its authority under the federal physician self-referral law, 42 U.S.C. § 1395nn (the "Stark Law"), to assess hospital
compliance with that law. While CMS has not yet sent these requests to hospitals, hospitals can expect them in the near future, as early as October 2007.
Significantly, the DFRR requests that hospitals include supporting documentation of its relationships with physicians, including copies of written agreements,
and verification of fair market value for leases. In addition, the DFRR requests information on the hospital's compliance with various Stark Law exceptions,
including the non-monetary compensation exception and the medical staff incidental benefits exception. While CMS estimates that the DFRR will take only six
hours to complete, this estimate seems unrealistic at best, particularly for those hospitals that do not maintain their contracts in one location or do not
have an effective system for managing physician contracts.
CMS will contact the 500 selected hospitals by e-mail, and once the hospital receives the e-mail request, it must respond (in hard copy) within 45 days.
Failure to submit a timely response may result in penalties of up to $10,000 per day.
While the identify of the 500 hospitals selected to complete the DFRR is unknown at this time, CMS has indicated that 290 of the 500 hospitals will be
hospitals that failed to respond to CMS's voluntary request for similar information sent to 450 hospitals in May 2006 pursuant to the Deficit Reduction Act of 2005.
Therefore, hospitals that received the voluntary DRA survey last year, but did not respond, can expect to receive the DFRR. It is also unclear whether CMS will eventually
send the DFRR to subsequent groups of hospitals. CMS has stated that it plans to use the data from the initial DFRR request to assist it in proposing a similar financial
disclosure process that will eventually apply to all Medicare participating hospitals.
Hospitals that receive the DFRR will be challenged to complete the eight worksheets and collect supporting documentation within the 45-day period. Because the CEO,
CFO or other comparable office must certify in writing that the responses to the DFRR are true and correct, hospitals must take particular care to ensure that their
submissions are complete and accurate. Hospitals should thus verify that their compliance programs have sufficient processes in place to track physician compensation
and ownership arrangements, and have adequate controls to assess compliance with the Stark Law. In addition, hospitals receiving the DFRR should consider engaging legal counsel
to assist them in reviewing the submission to CMS, particularly if the submission identifies physician arrangements that could be viewed as not complying with Stark Law requirements.
CMS contractors are charged with completing the DFRR submission and review process by September 30, 2007. This deadline is illusory, however, given that CMS proposed
revisions to the format of the DFRR as recently as September 14, 2007, see 72 Fed. Reg. 52568 (Sept. 14, 2007), to add two worksheets (to the previous six) that capture
information concerning indirect ownership interests in hospitals. Because the September 14, 2007 Notice provides for a 30-day public comment period, it is unlikely that
hospitals will receive DFRRs until at least the second half of October.
If you have any questions regarding this Client Alert, please contact David Robbins, Lisa Dobson Gould or Renee Howard at 206-622-5511.
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